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When Viral Media Attention Almost Sinks Your Class Settlement: Take-Aways From Charvat v. Resort Marketing Group, Inc.

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When Viral Media Attention Almost Sinks Your Class Settlement: Take-Aways From Charvat v. Resort Marketing Group, Inc.

When Viral Media Attention Almost SInks Your Class Settlement

The Telephone Consumer Protection Act (“TCPA”) has exploded in popularity over recent years. Originally enacted in 1991 to protect consumers from telemarketers and robo-callers, the TCPA has gradually broadened to include an expanding scope of business communications, including customer support calls, security notices, facsimiles, and text messages. The TCPA’s generous damages provisions (which include statutory penalties and attorney’s fees) make it an attractive basis for class action lawsuits. Ultimately, the more calls or communications the class can prove, the more a business’s potential liability skyrockets, and the TCPA provides for no real cap on damages.

A single TCPA violation carries a mandatory penalty of $500 per violation and courts have discretion to award treble damages, or $1,500, if the violation was found to be committed “willfully or knowingly.” To avoid liability, businesses must thread the needle of the TCPA’s largely ambiguous language. Further, the FCC has rule making authority over the TCPA, and its interpretations have consistently sharpened the statute’s teeth and extended its applicability. As a result, recent decisions have held that many examples of seemingly informational communications in fact qualified as “telemarketing.” For instance, a California court found that customer service calls were a “pretext to advertisements” and thus subject to the same consent requirements as telemarketing calls.[1] Similarly, a Michigan court found that a communication inviting physicians to a seminar sufficiently premeditated commercial activity to subject the invitation to the TCPA’s rigorous demands.[2] Further, while the TCPA provides a defense when the consumer gives “prior express consent,” the TCPA is silent on what exactly meets this definition of consent (and how it can be revoked[3]), leaving courts to create their own patchwork of guidelines.

A Caribbean Cruise Becomes an Odyssean Nightmare

When oversized TCPA damages collide with a class settlement notice that goes “viral,” the result can be a titanic headache for businesses and courts alike. This situation played out in Charvat v. Resort Marketing Group, Inc., et al.,[4] a saga of litigation spanning nearly a decade.

In 2012, Philip Charvat brought a TCPA class action against three cruise lines and a travel agency after he received prerecorded cruise advertisements that the travel agency placed using an auto-dialing system.

Discovery dragged on for years, and the briefing for class certification alone generated over 3,000 pages of material. The parties finally reached a common fund settlement of $12.5 million in June 2017, but the ensuing media circus spawned a new whirlwind of challenges as the settlement went viral.

The original settlement contemplated a maximum recovery of $900 per class member, but multiple, national media outlets reported that anyone who filed a claim would receive $900. As the claims flooded in, the parties tried to claw back the agreed-upon notice and claim-submission procedures. Initially, 2.7 million claims were received.  The court ultimately required that class members provide additional documentary proof of their claims, but the settlement had already gone viral—the “free money” genie was out of the bottle.

Class counsel agreed to return $1 million in attorneys’ fees to the settlement fund to replace some of the $3 million spent on whittling down the 274,851valid claims.  The court entered final approval of the settlement in November 2019, more than two and a half years after preliminary approval.  As a result of the viral settlement, in August 2020, over 250,000 class claimants finally began receiving an average recovery of $22.17—hardly a fraction of the $900 they expected based on the news media reports in 2017.

Takeaways: A New Tack for the TCPA?

The Charvat case serves as a cautionary tale of the confusion and risk associated with a TCPA class action: discovery drags on, damages balloon, and the number of class members and claims becomes a huge risk when a settlement goes viral. Unfortunately, the TCPA’s scope continues to grow exponentially as smartphones and texting become our primary communication tools. Meanwhile, the FCC’s antiquated and broad interpretations remain in effect, making compliance nearly impossible for businesses. The most recent guidance from the Supreme Court indicates the TCPA—and its lofty damages—are here to stay, if for no other reason than widespread disdain for robo-communications.[5] In December 2020, the Supreme Court will hear arguments in a TCPA case involving security notification texts that Facebook sent to its users. The case shows how even innocuous communications can generate massive statutory damages.

Scholars are rife with suggestions for the TCPA,[6] but for now, businesses must focus on the tall task of compliance. Among other things, compliance requires carefully crafted consent and TCPA opt-out provisions, tireless management of third-party vendors and marketers, and assiduous updating of customer lists and information. A small mistake in one area can yield enormous liability.

If your company ends up as a defendant in a class action lawsuit, Risk Settlements, the industry leader in structuring class action settlements, can help you evaluate your litigation options and design an optimal settlement structure with cost certainties that are considerably more efficient than similarly sized common fund settlements.  Our expertise in developing efficient settlements and our ability to absorb the risk of any one settlement into a diverse pool of settlements involving various types of defendants, classes, claims and jurisdictions backed by full risk transfer to an insurer provides companies with the certainty they need to get back to business.

A prospective Risk Settlements client in the throes of class action litigation receives a confidential, no-obligation, tailor-made analysis concerning the financial risk arising from settlement. The analysis uses proprietary risk algorithms and the nation’s most robust class action litigation database to assess the settlement value against the actual cost of resolution. Risk Settlements provides Class Action Settlement Insurance (“CASI”) through an affiliated AA+/A++ global insurer.

In return for a fixed premium, a Risk Settlements client receives indemnification of 100% of the payment risk to the class under the settlement terms. A client’s policy could also include defense fees and costs from settlement to the effective date. However, Risk Settlements offers its clients more than merely insurance; its team of experienced legal specialists can help clients formulate creative strategies for crafting a settlement and notice plan that will achieve final approval. Risk Settlements also maintains relationships with leading notice providers, enabling CASI clients to take advantage of their services at reasonable rates.

CASI-backed claims-made settlements offer upside, like the fact that CASI premiums are substantially less than a common fund payment would be. This can also be the case for claims-made settlements where claims rates are exceptional, such as when a settlement goes “viral” as it did in Charvat.

[1] Order Re: Defendants’ Joint Motion for Summary Judgment, Katz v. American Honda Motor Co., 2017 U.S. Dist. LEXIS 114160, at *2 (C.D. Cal. May 12, 2017).

[2] Physicians Healthsource, Inc. v. Stryker Sales Corp., 65 F.Supp.3d 482, 491 (W.D. Mich. 2014).

[3] Scott J. Hyman et. al., Unconscionability and Contractual Consent-to-Call Clauses Under the Telephone Consumer Protection Act, 73 Consumer Fin. L.Q. Rep. 25 (2019).

[4] Case No. 1:12-cv-05746, in the United States District Court for the Northern District of Illinois.

[5] Barr v. Am. Ass’n of Political Consultants, Inc, 140 S. Ct. 2335, 2344 (2020) (highlighting legislative history that described robocalls as “the scourge of modern civilization”).

[6] Stuart L. Pardau, Good Intentions and the Road to Regulatory Hell: How the TCPA Went from Consumer Protection Statute to Litigation Nightmare, 2018 U. Ill. J.L. Tech. & Pol’y 313 (2018).



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